Longer Road to Normal (Higher) Credit Losses on Cards: Interactive Graphic

The latest monthly reports from credit card issuers provide more evidence that loss rates will stay abnormally low longer than thought just a few months ago.

Early-stage delinquency rates, or the percentage of balances 30 to 60 days overdue, slipped across the board at the Big Six issuers in April from March.
Writeoff rates inched up at all but Citigroup (NYSE:C) and Discover (DFS). The moves generally fit the typical seasonal pattern. (Data for the nation's largest issuers is shown in the following graphic. Text continues below.)

With the declines in April, early-stage delinquency rates — the primary indicator of loans that will ultimately have to be charged off as uncollectible — are now at longtime lows at each of the Big Six.

Issuers and analysts have been predicting that loss rates will inevitably have to drift back up toward long-term historical norms, though possibly at lower levels than before the crisis. But they have been surprised at how long the favorable results have persisted.

In April, Discover said improvement in its loss forecast from only about a month earlier drove a $154 million reserve release.

Portfolio yields fell at most of the big issuers in April, though three-month averages, which smooth out volatility, were up everywhere except for American Express (AXP), where the yield was nevertheless high relative to competitors. Over about the last year and a half, yields have generally been falling at Bank of America (BAC) and Discover, but have been climbing elsewhere.

Discover said that promotional rate balances had pressured yields in the first quarter compared to the year prior, but that lower funding costs and lighter-than-expected writeoffs of interest charges led to an increase in its net interest margin.

Three-month average payment rates, or the percentage of outstanding principal balances that cardholders pay off, fell everywhere except at Capital One (COF).

Overall, payment rates remain high relative to historical standards, reflecting the strong credit quality among accountholders, many of whom pay down their bills in full each month.

Despite the solid credit performance, focus remains on loan growth, which has mostly been absent since credit card receivables bottomed out in early 2011 after a precipitous retreat that began during the recession.

At American Express, which has traditionally posted the best credit numbers in the industry, Chief Financial Officer Daniel Henry said last month, “As I say each quarter, our objective is not to have the lowest possible writeoff rate, but to achieve the best economic gain when we invest.”